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Russian Oils – sanctions are only mildly negative for Russia’s oil production outlook

 
04.08.2014
According to Vedomosti, the sanctions imposed by the US and EU might negatively affect oil production in Russia. On 29 July, the EU issued a statement that the export of oil equipment to Russian would now require advance approval. Similar sanctions were imposed by the US.

There are a number of onshore technologies that Russian oil companies use widely today: hydrocracking, horizontal drilling, high resolution 3D seismic, top-drives (for drilling rigs), PDC drill bit, LWD-MWD downhole telemetry and advanced mud-engineering. However, we believe Russia has been using most of them for a good while and is self-sufficient in the majority. Others, like top-drive (which requires new equipment and is helpful for constructing deep wells), can be imported from China. All in all, from our point of view, there is no reason to believe that sanctions will have any significant impact on Russian crude oil production in the short and medium term. And certainly, we do not envisage them being a threat to the industry’s development.

On the other hand, what is obviously under threat is off-shore development, particularly in the Arctic. However, we are far from alone among industry specialists in insisting that Russia must not waste its resources (financial, human, administrative, etc.) developing the highly expensive and questionable Arctic shelf. The country has enormous remaining reserves of oil in West Siberia and setting taxation at a reasonable level would provide the industry with an incomparably large source of conventional oil (which is also incomparably cheaper to extract).

Dmitry Loukashov, Ekaterina Rodina, Alexander Donskoy, Kirill Sharikhin, Ekaterina Kataeva
VTB Capital analyst

Tags:
oil, Russia

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